Commercial Tenant Fails to Give Proper Notice of Intent to Extend Lease – IL Case Note

Although it’s an unpublished opinion, Sher-Jo, Inc. v. Town and Country Center, Inc., 2017 IL App (5th) 160095-U still serves as a cautionary tale for tenants that fail to hew to lease notice requirements.  The tenant plaintiff under the commercial lease was obligated to serve the defendant landlord with written notice by registered mail of the tenant’s exercise of its option to extend the lease for an additional five-year term.

Instead of mailing notice of its plans to extend the lease, the tenant faxed its notice and verbally told the landlord it was exercising its option to extend.  But the faxed notice didn’t specify the tenant was extending the lease.  It just said that the tenant’s sublessee – a restaurant – was going to extend its sublease for another five years.

The landlord rejected tenant’s attempt to renew the lease on the basis that it didn’t comport with the lease notice rules.  It (landlord) then entered into a lease directly with the restaurant subtenant.  The tenant filed suit for specific performance and a declaratory judgment that it properly and timely exercised the lease extension option.  After the trial court found the tenant successfully notified the landlord of its intention to extend the lease, the landlord appealed.

Held: Reversed.  Tenant’s failure to adhere to Lease notice requirement defeats its attempt to renew the lease.

Rules/Reasons:

A commercial lessee who seeks to exercise an option to extend a lease must strictly comply – not “substantially comply” – with the terms of the option.  And even though a failure to follow an option provision to the letter can have draconian results, rigid adherence to option requirements promotes commercial certainty.

Here, the tenant’s faxed notice only mentioned that it wished to extend the sublease with the restaurant.  The notice was silent about extending the master lease.

The Court rejected the tenant’s argument that a lease amendment modified the option notice provision in the main lease.  This was because while the amendment did reference the tenant’s option to extend the lease for an additional five-year term, it left untouched the master lease’s requirement that the tenant notify the landlord by certified mail of its intent to exercise the option.

Afterwords:

1/ In the commercial lease milieu, strict compliance with notice provisions is essential.  Although this case works a harsh result on the tenant/sub-lessor, the Court viewed fostering certainty in business transactions as more important than relieving a tenant who substantially, but not strictly, adhered to a lease notice requirement;

2/ Parties to a commercial lease should take pains to comply with notice provisions of a lease.  Otherwise, they run the risk of a court finding they failed to satisfy a precondition to extending a lease.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.